IPO Activity Picks Up in Q2 2018, But Less Money Raised

After a Q1 slowdown in IPO activity, the number of initial public offerings on U.S. exchanges rebounded in Q2. There were 75 IPOs in the second quarter compared to 54 in Q1, a 39% jump; this was the highest volume of IPO activity since Q2 2015. The Q2 number was up 5.6% from the 71 companies that IPO’d in the second quarter of 2017.

The strength of the second quarter was largely driven by a rush of new issues in the last week of June. There were 13 IPOs the week of June 25, raising a total of $2.5 billion; this was the busiest week for IPOs in three years. During the week of June 22, 2015, there were 14 IPOs, raising a total of $2.7 billion.

In terms of gross proceeds, the second quarter of 2018 may have seen a higher number of IPOs, but the deals were significantly smaller. Gross proceeds from IPOs totaled $16.5 billion for the quarter, down 12% from the previous quarter but up 12% from a year earlier. Still, given the strength of Q1, IPOs have already generated $35.2 billion so far in 2018, more than two-thirds of the total gross proceeds raised in all of 2017 ($50.9 billion).

Trend Toward Bigger Public Offerings

Although offerings in Q2 were on average smaller than we saw in Q1, we’re still seeing a continuation of the overall trend toward larger public offerings that began in 2017. In Q2, gross proceeds from IPOs averaged $220 million, just below 2017’s annual average of $222 million. In Q2, IPOs with gross proceeds of between $100 and $500 million represented 49% of all IPOs, while 10.7% of IPOs raised more than $500 million. For the quarter, there were two IPOs that raised more than $1 billion. While this was half of what we saw in Q1, so far in 2018 we’ve already had six of these mega-IPOs. This makes 2018 the best year for mega deals since 2014, when we saw 18 IPOs with gross proceeds over $1 billion for the entire year.

Five Largest IPOs in Q2 2018

Company Name

Gross Proceeds (Mil. $)

FactSet Sector

Offer Date

AXA Equitable Holdings Inc.

2,745.00

Finance

10-May-2018

GreenSky Inc.

1,005.10

Finance

24-May-2018

BJ’s Wholesale Club Holdings, Inc.

733.13

Retail Trade

27-Jun-2018

DocuSign Inc.

723.70

Technology Services

26-Apr-2018

Pivotal Software, Inc.

638.25

Technology Services

20-Apr-2018

Source: FactSet

Health Technology Sector Represented One-Third of Q2 2018 IPO Volume

Of the 75 initial public offerings in the second quarter, 25 came from the Health Technology sector, the highest representation of any sector. However, the IPOs in Health Technology were smaller than the average for the quarter across all IPOs ($220 million). In Q2 2018, the IPOs in the Health Technology sector on average raised just $107 million, with the sector only seeing total gross proceeds of $2.7 billion, representing just 16% of total funds raised.

On the other hand, the Finance sector had 19 IPOs in the second quarter, but those offerings raised a total of $6.9 billion, 42% of total funds raised in the quarter. This sector’s offerings included both mega-IPOs for the quarter; the AXA Equitable Holdings IPO priced on May 10 raised $2.75 billion and the GreenSky IPO on May 24 raised $1 billion.

IPOs by Sector (Ranked by 2Q 2018 volume)

Number of Transactions

Gross Proceeds (Mil. $)

2Q 2018

1Q 2018

2017

2Q 2018

1Q 2018

2017

Total

75

54

229

$16,484

$18,680

$50,908

Health Technology

25

13

47

$2,671

$1,163

$4,448

Finance

19

13

76

$6,886

$4,927

$18,229

Technology Services

13

7

20

$3,272

$3,920

$8,576

Commercial Services

6

5

15

$1,441

$4,423

$1,937

Retail Trade

2

2

7

$789

$757

$1,298

Consumer Non-Durables

1

0

4

$10

$0

$352

Consumer Services

1

1

4

$9

$143

$2,538

Electronic Technology

1

1

5

$110

$20

$269

Energy Minerals

1

0

4

$106

$0

$1,263

Health Services

1

0

1

$118

$0

$138

Industrial Services

1

6

9

$143

$1,369

$3,049

Non-Energy Minerals

1

0

3

$13

$0

$1,683

Process Industries

1

0

3

$12

$0

$1,384

Producer Manufacturing

1

2

8

$571

$1,030

$1,594

Transportation

1

1

4

$332

$486

$1,596

Communications

0

1

1

$0

$3

$357

Consumer Durables

0

1

5

$0

$110

$660

Distribution Services

0

0

4

$0

$0

$376

Miscellaneous

0

0

8

$0

$0

$818

Utilities

0

1

1

$0

$330

$345

Financial Sponsors Are Coming Back

In 2017, just 43.2% of IPOs priced on U.S. exchanges were backed by financial sponsors, i.e. private equity or venture capital firms. However, in the first half of 2018 more than half of IPOs have been financial sponsor-backed IPOs. In Q2, the share was 58.7%, the highest quarterly percentage since the fourth quarter of 2015. In terms of capital raised, financial sponsor-backed IPOs represented 55% of total gross proceeds in the second quarter of 2018. This was the highest ratio since the first quarter of 2017, when the Snap IPO boosted the ratio to 65.9%.

There were 33 venture-capital backed IPOs in the first quarter, the highest quarterly number in three years. The offerings were bigger, including two of the top five IPOs of the quarter, GreenSky and DocuSign. As a result, gross proceeds totaled $5.8 billion, making it the biggest quarter in terms of money raised since the fourth quarter of 2013.

There were 11 private equity-backed IPOs in the second quarter of 2018, down from 14 in the first quarter. The biggest PE-backed offering of the quarter was the BJ’s Wholesale Club IPO, which priced on June 27 and raised $733 million. This was a return to the public markets for BJ’s, which was taken private in 2011.

IPO Highlights and Trends

The May 10 IPO of AXA Equitable Holdings was the largest U.S.-listed IPO so far in 2018, but it still failed to meet expectations. The offering for this French insurer was expected to raise $3.5 billion; however, the IPO was priced at just $20 per share, below its expected range of $24-27 per share, raising just $2.75 billion. The IPO came at a time when insurance companies remain under a lot of pressure, with shares of Prudential Financial, Principal Financial, and MetLife all down 10-25% year-to-date.

Although the number of Chinese (China and Hong Kong) companies listing on U.S. exchanges fell in the second quarter (six compared to nine in Q1), this is still an important trend to follow. Only two Chinese companies had IPOs on U.S. exchanges in 2016; in 2017, this number jumped to 24, raising a total of $3.9 billion. So far in 2018, we’ve already seen 15 Chinese company IPOs raising a total of $3.9 billion, so we’re on track to surpass last year’s numbers. The largest and most closely watched Chinese IPO in the second quarter was live streaming company Huya, which priced on May 11 and raised $207 million. So far, Huya’s stock has performed well, doubling in price since its debut (closing at $32.09 on July 10 versus its opening price of $16.06).

Looking ahead at future IPOs, there are 28 companies that released initial preliminary filings in 2017 and are still in registration (this excludes offerings that have been postponed or withdrawn). In addition, another 59 companies have released their initial preliminary filings so far in 2018. Of the companies that have filed in 2018, the pipeline is dominated by the Health Technology and Finance sectors, continuing the trend of the last year.

Note: All statistics are based on FactSet data for IPOs priced during the specified period for companies going public on exchanges in the United States.

VP, Associate Director, Thought Leadership and Insights

Sara Potter is responsible for developing applications that facilitate the analysis of global markets at a macro level, highlighting FactSet’s vast benchmark and economic content sets. Since joining FactSet in 1999, Ms. Potter has also managed the economic database development team, where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Ms. Potter received a M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.